Sri Lanka Economic Update April 2018

CBSL Cuts Policy Rate: Central Bank of Sri Lanka (CBSL) reduced the Standing Lending Facility Rate (SLFR) by 25 basis points in early April 2018 considering the favorable developments in inflation as well as lower than expected GDP growth that further widened the gap between actual and potential GDP growth.

USD 2.5 billion Sovereign Bond Issuance: The CBSL issued USD 1.25 billion each of 5-year and 10-year bonds as Sri Lanka reentered the international capital with is largest offshore bond offering so far.

Trade Rises: Both export earnings and import expenditure increased significantly in January 2018 with each increasing by 12% on a Y-o-Y basis. As a result, the trade deficit expanded during the month as the absolute growth in imports offset the increase in export earnings.

Gross Official Reserves Declined: By USD 613 million to USD 7.3 billion in March 2018 compared to the previous month

Inflation Eases Further: CCPI headline inflation eased to 4.2% (from 4.5% in February) in March 2018 while the CCPI core inflation declined to 3.4%. In March 2018, the NCPI headline inflation decreased to 2.8% which was the lowest since April 2016 and NCPI Core inflation declined to 1.9%.The decline in inflation has been driven by an improvement in food supply conditions.

IMF Agreement Reached: The 4th review saw a Staff-Level Agreement reached though the completion of the review in June will be subject to a cabinet approval of an automatic fuel pricing mechanism.

Stock Market Performance: The ASPI was up marginally by 0.7% so far during the month of April and is up 2.4% for the year (as at 23 April 2018).